6 things U.S. investors need to know about Greece right now

It is shaping up to be an ugly day for financial markets after Greece’s debt crisis took a turn for the worse over the weekend, leaving the country’s banking sector closed and Athens several steps closer to default and a potential exit from the eurozone.

What happened?

Greek Prime Minister Alexis Tsipras surprised European policy makers late Friday, announcing that the country would hold a July 5 referendum on whether to accept terms demanded by its international creditors. Greece on Sunday announced that the country’s banks wouldn’t open on Monday and will remain closed until after the referendum.

Now what?

The immediate focus is on Greece’s 1.54 billion euro ($1.71 billion) payment to the International Monetary Fund that is due on Tuesday. Credit agencies have said that a missed payment wouldn’t technically constitute a default, since the IMF is an “official” creditor.

But that offers little comfort since IMF Managing Director Christine Lagarde last week said she would immediately notify the fund’s executive board of nonpayment, triggering cross-default provisions on the bailout loans that eurozone countries provided Greece.

How exposed is the U.S. to Greek debt?

Not very. The vast majority of Greek debt is now in the hands of the “official” sector — the International Monetary Fund, the European Central Bank and eurozone countries.

While more than $350 billion of Greek debt would be in default if the cross-default provisions are triggered, only around $40 billion resides in commercial banks, said Scott Minerd, global chief investment officer at Guggenheim Investments, in a note. Out of that $40 billion, $14 billion is owed to U.S. banks.

“This is not a large enough exposure to severely damage the commercial banking system,” he said.

So no worries, then?

Not so fast. Minerd and others note it isn’t clear whether any single institution, say a bank or a big hedge fund, is overly exposed to Greece.

After all, Long Term Capital Management, the hedge fund that collapsed in 1998, wasn’t a bank, but its failure “nearly took out the whole U.S. banking system,” recalled Carl Weinberg, global chief economist at High Frequency Economics.

What about the Fed?

One key question is whether global financial turmoil will cause the Federal Reserve to delay the beginning of its long-awaited rate-hike cycle.

A global asset-price meltdown or a financial crisis could certainly do that, said Steven Barrow, currency and fixed-income strategist at Standard Bank in London. “We still believe that the Fed is on course to start lifting policy rates from September although that’s admittedly a view that could change depending on how events in Greece pan out and the degree of contagion that we see internationally,” he said.

Time to bail or buy?

While it is unclear how deeply the U.S. market could be affected should the Greek crisis deepen even further, Sam Stovall, U.S. equity strategist at S&P Capital IQ, took a look in the table below at how U.S. stocks have weathered a variety of unexpected shocks over the last 70 years, “including wars, assassinations and attempts, terrorist attacks, and financial collapses.”

Even if the current drama causes the S&P 500
SPX, +0.59%
to fall more than 10% — an event unseen since October 2011, “it could be a blessing in disguise,” Stovall said, in a note.

“As history has shown, prior market shocks have usually proven to be better opportunities to buy than bail, primarily because the events did not dramatically alter the course of global economic growth,” he said.

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